BLOG: Why China’s HDPE net imports could average just 700,000 tonnes per year in 2024-2030

SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson.

The global petrochemicals industry must prepare for the possibility that China is close to self-sufficiency in high-density polyethylene (HDPE), low-density PE (LDPE), linear-low density PE (LLDPE), polypropylene (PP), paraxylene (PX) and mono-ethylene glycols (MEG) by 2030.

As I work through the products, see today’s post on HDPE where I present the following three scenarios:

• The ICIS Base Case: An average China HDPE operating rate of 72% in 2024-2030 and average demand growth of 3%. This would lead to net imports averaging 7.6m tonnes a year.
• Downside Scenario 1: An average 82% operating rate, an additional 5.2m tonnes/year of unconfirmed capacity comes on-stream, and 3% average demand growth. Annual average net imports total 3.8m tonnes.
• Downside Scenario 2: An average 88% operating rate, an additional 5.2m tonnes/year of unconfirmed capacity comes on-stream, and 1.5% average demand growth. Annual average net imports total just 700,000 tonnes.

Why do I see these alternative outcomes as possible?

As regards operating rates you can argue that China’s new HDPE capacity will be super-efficient in terms of scale and upstream integration, including perhaps advantaged supplies of crude into refineries.

There is a potential “win-win” here. The oil-to-petrochemicals majors, especially Saudi Aramco, are keen to underpin crude production levels given the threats to long-term global crude demand from sustainability. China is the world’s biggest crude importer.

Petrochemical operating rates in China have historically been a political as well as an economic decision. China made the decision in 2014 to push towards complete petrochemicals self-sufficiency.

Our base case demand growth estimate of 3% per annum between 2024 and 2030 is perfectly reasonable and well thought-out, as it reflects the big turn of events since the “Evergrande moment” in late 2021.

Growth of 3% would be hugely down from the 12% average annual growth between 1992 and 2023 during the Petrochemicals Supercycle, which was mainly driven by China.

I have therefore stuck with 3% demand growth in Downside Scenario 1 while raising the operating rate to 82% for the reasons described above.

But I believe we need to go further to achieve proper scenario planning. Downside Scenario 2 takes demand growth down to 1.5% and raises the operating rate to 88% – the same as the actual operating rate in 1992-2023.

If Downside 2 were to happen, HDPE pricing markets would be upended. No longer would landed-China prices be as relevant as China’s import volumes would be much lower than they are today.

Demand patterns in and trade flows to the world’s remaining net import regions and countries – Europe, Turkey, Africa, South & Central America, Asia and Pacific and the Former Soviet Union – would become much more important.

In short, the petrochemicals world would be turned on its head.

Are you prepared for all the eventualities?

Editor’s note: This blog post is an opinion piece. The views expressed are those of the author, and do not necessarily represent those of ICIS.